Managing risk at US Hospitals has never been harder: Beazley


Historically high severity for hospital professional liability claims, combined with a growing threat from data breaches, means that the challenge of managing risk at US hospitals continues to grow, according to data gathered by Beazley.

The findings, published this week in Aon's annual benchmark analysis of hospital and professional liability, show the average cost of closed claims with indemnity reached an historic high of $463,000 in 2012 and has stayed at that elevated level since. In 2014 it stood at $459,000.

However, the experience of so-called tort reform states – where non-economic damages have been capped by statute – is particularly concerning. The severity of average claims in these states has been increasing faster than elsewhere. 

In 2008, only 2.2 percent of claims from tort reform states exceeded $2,000,000. By 2013, this proportion had risen to 4.1 percent and last year it jumped further, to 5 percent. 

"Tort reform, though still valuable in restraining the cost of claims, provides less effective insulation to hospitals than was originally the case," said Steve Chang, healthcare claims team leader at Beazley.  

"The plaintiffs' bar has become very adept in maximizing the economic damages which remain uncapped. Moreover, we are finding that the distinction between tort reform and non-tort reform states is becoming increasing blurred with states such as California, Maryland and Florida, all of which are tort reform states, beginning to rival their non-tort reform counterparts."

Less sensitive to the legal framework in individual states has been the risk of data breaches, which Beazley's experience indicates has been increasing for all US hospitals. In particular, Beazley has witnessed a sharp increase in hacking and malware attacks against healthcare organizations, predominantly hospitals. 

These attacks accounted for 30 percent of the 592 healthcare data breaches that Beazley helped clients handle in the year to mid-October, up from 12 percent in 2014. 

The report cites a number of reasons why healthcare providers may be more at risk from data breaches than other organizations, including the high value of stolen medical records and the extensive sharing of data among healthcare providers and contractors.  But the increase in hacking and malware attacks is a relatively recent phenomenon. 

Aon's benchmarking analysis also explores the complex relationship between the quality of care provided and the incidence of professional liability claims against healthcare providers. 

In particular it looked at the so-called value-based purchasing (VBP) metrics imposed under the Affordable Care Act of 2010. Participating acute care hospitals now receive a bonus or penalty from the Centers for Medicare & Medicaid Services (CMS) in line with their performance against VBP metrics, which take 26 hospital- and patient-reported quality measures into account.

Aon's analysis found "no meaningful correlation" between hospitals' performance against VBP metrics and their professional liability claims frequency. The study's authors did suggest, however, that Beazley's approach, which eschews a one-size-fits-all set of metrics applied to all hospitals, could be more effective. 

Beazley works closely each hospital to identify its own set of quality objectives that are expected to be linked to claims costs. Hospitals that achieve these mutually agreed targets are rewarded with a return premium at the end of the policy period that typically varies between 5 percent and 10 percent of the total premium.

Beazley, Aon, Steve Chang, Europe, US